Outlook for 2010
The management board of Baltika Group believes that in principle the Group completed the process of adapting to the impacts of the global economic crisis in its target markets in 2009. The retail system ended the last quarter of 2009 with a profit of 7 million kroons (0.4 million euros) and cash flows from ordinary operations have stabilised. At the beginning of 2010, the level of inventories per square metre (35% down year-over-year) and the retail systems’ operating expenses (27% down year-over-year) correspond to the level of sales planned for 2010.
The Group has made its sales forecasts for 2010 on the assumption that on the whole the economies of Baltika’s target markets will not be growing in 2010. If the first half of the year will still be under the influence of a decelerating downturn, then by the summer sales in the Group’s markets as a whole will have stabilised and the second half of the year should bring modest economic growth for some of the markets (mainly on account of extremely low comparative bases).
Since in annual terms sales will not be growing yet (a slight decline in the first half-year and growth in the second), Baltika is going to focus its main efforts on creating strong collections, improving the financing of its purchasing operations, achieving higher product margins and enhancing customer care. The result should be a significantly improved gross margin. The latter in combination with substantially smaller operating expenses (according to plan, 50 million kroons/3.2 million euros lower than in 2009) should allow Baltika to start earning a profit in the second half-year.
In order to strengthen its financial position, in the first half of the year the Group intends to divest of a number of properties related to manufacturing operations. Baltika will also continue working with the banks to secure additional cash flow for purchasing goods and restructuring the loan portfolio. In addition, the management board is planning to propose an additional share issue.
Baltika does not intend to invest in the expansion of the retail system in 2010.